SSgA Adopts Director Tenure Policy for Investee Companies

State Street Global Advisors (“SSgA”) recently adopted a director tenure policy for investee companies, citing the importance of refreshing the skill sets represented on boards and succession planning. In addition, SSgA believes that long tenure may diminish independence. The policy notes that the average board tenure across 1300 companies listed in the U.K. is 6.4 years, in contrast to the average board tenure of 8.6 years across 5600 companies in the U.S. While the policy acknowledges that long-tenured directors can still be effective, it discourages these directors from serving on “key board committees where independence is paramount” including audit, compensation, and nominating/governance.

The policy takes into account differences in board tenure across jurisdictions. It considers a company to have “excessive board tenure” is board tenure if the board’s tenure exceeds one standard deviation above average market level tenure. A director would have excessive tenure if the director’s tenure is more than two standard deviations above average market level tenure. SSgA says its policy expects:

Nominating/governance committees to periodically review the skills of board members in relation to the company’s long-term strategy to plan for an orderly succession process

Long-tenured directors not to serve on key committees

Companies to declassify boards.

SSgA indicated that its policy could translate into the following voting decisions:

Voting against only the chair of the nominating/governance committee for failing to adequately address board refreshment and director succession

Voting against long-tenured directors on key committees or

Voting against all members of the nominating/governance committee and long-tenured directors on classified boards.